Month: December 2004

A report from a State Corporation Commission hearing examiner cleared Bristol Virginia Utilities of allegations it subsidizes its telephone service with income from its other operations according to an article in the hometown newspaper.

Cross-subsidization of municipal telecom services (and only municipal’s—the phone and cable companies are free to use money from any source in pricing their competitive offerings) is forbidden by state law in Virginia—as it is here in Lafayette.

Readers may recall Bristol. The city has been so often cited as an example of the failure of municipal fiber-optics, when it is actually one of the movement’s signal success stories, that it makes for an excellent case study in just how incumbent disinformation and delaying tactics work—As Mike demonstrated in his Fact Check piece: Blowing the Whistle Over Bristol. As is mentioned in the “Blowing the Whistle” article, cross-subsidization has long been a charge leveled against Bristol based mostly on a story (one should not call it a study) by the Progress and Freedom’s man Thomas Lenard who repeated similar charges during the “Academic” Broadband charade staged here by Cox and BellSouth.

A similar attempt to disrupt the functioning of the Bristol Virgina Utilities (BVU) by litigating its right to offer video services also ultimately failed—but not before it deprived the local utility of a year of income from its most lucrative service and $625,000 in legal fees. (A fact which the learned Lenard’s strained analysis failed to take into account.) The same issue emerged in the cross-subsidization dispute:

Jim Bowie, attorney for the utility’s board, said it was unfortunate that it took two years and thousands of dollars to reach this point.

“We didn’t have any choice,” he said. “We had to spend that money, and it was money that was down the drain. We’re just tickled to death that we were proved right.”

Bristol had to get a state law forbidding publicly owned utilities from offering telecom services repealed just to begin offering its services; they’ve more than adequately proved their moxie. Faced with this sort of litigation local politicians and state municipal organizations should begin to plan the repeal of any and all laws that the telecoms can use as a bludgeon to force unfair expenses on local governments that only want to serve their citizens. A bill that combined repeal of the cross-subsidization law and with the repeal of a couple of million in one the state’s tax breaks for the companies involved should send an adequate message; even if it didn’t pass the first time. This sort of abuse of the legal system shouldn’t be “cheap” for the perpetrators.

Preparing a first draft of a such a piece of legislation and quietly releasing it to local state legislators and the Louisiana Municipal Association for comment might have salutary effects here. It’s always worthwhile to have an arrow waiting in your quiver.

This story is from CBS MarketWatch. It’s available via free registration at the site.

As John has documented, the Regional Bell Operating Companies (RBOCs) are putting on a full court press in legislatures in states across the country where municipalities have so much as mentioned the concept of network infrastructure being essential economic infrastructure. The RBOCs are, in effect, declaring network building to be rocket science and themselves to be latter day Werner von Brauns.

As we have heard in Lafayette from RBOC BellSouth, the party line is that only the RBOCs have the brains, the brawn and the deep pockets to figure out when, where and how to deploy new, more robust network infrastructure.

As you’ll discover in the above-linked article, financial analysts are now saying that those RBOCs who have committed to new fiber network buildouts (SBC and Verizon) are doing so in order to try to hold on to their most lucrative, high-value residential customers. No mention of Qwest and BellSouth, who have not yet announced any new, company-wide network infrastructure initiative.

But, there is this passage which indicates that the RBOCs may not be playing from a position of strength when it comes to the cable companies — and, maybe not even the municipal fiber promoters:

Yet the cable industry, its appetite whetted by the success of its high-speed Internet business, is gearing up to offer phone service in most of the country. Cable companies already are capable of delivering phone calls to 20 percent of the homes they serve, a figure expected to reach 75 percent by 2006, UBS predicted.

By the end of 2004, cable is expected to deliver phone service to 3 million customers. While that’s just a fraction of the 81.7 million residential lines served by the Bells, UBS predicts cable could reach 9 million phone customers within four years.

For the Bells, “doing nothing while cable takes high-value residential customers is a losing strategy,” UBS said.

The cable competition, combined with other services such as Internet telephony, eventually could wrest millions of additional lines away from the Bells. By 2010, the number of lines served by SBC, Verizon and BellSouth could fall to under 50 million, UBS said.

Granted, the brokerage’s calculations are merely a rough approximation. Still, the trend is clear. The local phone giants need to find away to cut their losses, and they know that. Hence the costly fiber strategy.

“They need to do it because the phone revenue is going to disappear,” said Dave Burstein, editor of the DSL Prime newsletter, who listened to the UBS presentation.

Did you catch that? The phone revenue is going to disappear! They mean ‘voice’ revenue. And the reason that’s trouble is that you can’t move very much more than voice over copper networks, at least not without sinking a lot of fiber into the ground. This is, as the article says, an expensive proposition. And, the prospect of declining revenues, is going to add a degree or two of difficulty to securing financing for those infrastructure investments.

So, it could well be that, rather than a show of strength, the RBOCs’ attempts to block munis from the network infrastructure business is a sign of desperation. SBC and Verizon clearly believe the industry is approaching a tipping point. They’re committing billions to new infrastructure for a reason — they feel they must do so in order to survive.

The bellicosity of BellSouth, on the other hand, calls to mind a fabled power from another era.

Sound advice to the legislatures: “Ignore that man behind the curtain!”

The outrageous situation of the state of Pennsylvania handing over the right to make infrastructure decisions to transnational corporations has led to at least some reporting on the issue of municipal provision of telecom. CNet does a good job of summarizing the larger story even if does, IMHO, give too much play to for-purchase conservative think tank “reports” and no attention at all to actual, actually objective, academic studies. (For instance, see this actually academic study, Broadband Open Access: Lessons from Municipal Network Case Studies, which to my knowledge no reporter has ever bothered to dig up. It’s too bad academics don’t do press releases.)

Summarizing its summary the story lets you know:

“What’s new:

Baby Bells and cable companies are teaming up to block cities from building their own broadband Internet services.

Bottom line:

Cities with broadband ambitions should expect a no-holds battle from incumbent providers trying to protect their turf.”

‘Course it’s not new and not news that incumbents will fight dirty to folks who’ve been on the front lines as we have been here in Lafayette—but it is nice to know that someone is noticing.

‘Tis the season for cable increases. My Cox tracking devices have been pulling up a series of stories like this one in the Salina Journal in Kansas. Rates are rising across the country ranging from about 4 to 8%, depending, according to Cox on a vaugely described complex formula that takes into account such non-cost factors as living costs but is generally driven by programming costs. Cable rates have been the subject of much concern nationally as they have consistently outstripped the rate of inflation since degregulation—a move that was intended to increase competition and so drive down rates.

It is currently possible to discover how much (roughly) Cox spends on programming through stockholder reports and information that must bemade available to stockholders on request. With Cox’s being taken private, announced this morning (and blogged by Mike) it will be much more difficult than even it is now to come to a rational conclusion about whether Cox’s pricing policies are fair.

Most of the Salina Journal story is about local numbers but the following closing remarks are more widely relevant (emphasis mine):

Most of the nation’s cable companies, including Cox, have announced rate increases, as have their main competitors, satellite television providers. Higher programming and operating costs are the reason, Peck said.

Across the country, consumers now pay 56 percent more for cable than in 1996 when cable rates were deregulated.

Deregulating a natural monopoly simply does not work. Most of the country can only hope for price relief by turning to the bandwidth-limited alternative to cable, satellite TV. Few will have, as it now seems Lafayette will, the opportunity to move to public provision through the bandwidth-superior technology of fiber optics as way of ensuring local control, controlling costs, and making sure that our alternative is technologically unlimited. We should thank our lucky stars.

Cox Communications ceased to exist today as Cox Enterprises, Inc., announced the successful conclusion to its $34.75 per share tender offer. Here’s the story. Here’s how the Cox Enterprise newspaper the Atlanta Journal Constitution reported the story today.

The move could have both positive and negative impacts for consumers. The positive impact will be that Cox Enterprises will be able to make its cable investment decisions in a more rationale environment than stock markets which are driven by the ability of companies to meet the expectations of analysts who have never run a business like the ones whose fates are so closely linked to their opinions. This should allow Cox to take a longer term perspective on things like network infrastructure investments. Who knows? Maybe Cox Enterprises, Inc., will get into the fiber to the premises business!

The negative impact will be that customers and consumers will have less influence on the performance of the privately-held Cox Enterprises, Inc. There will be less transparency; that is, there will be less information about the company that will be publicly available. For instance, there will be no way to check the company’s claims about its financial situation once it’s private.

Today marks the end of an era. It remains to be seen what kind of impact this change will have on the company’s business practices.

Fast Internet Service for The People (washingtonpost.com)

In an interview in the current (December/January) edition of queue magazine, Alan Kay, one of the most influential figures in computer programming over the last 30 years or so, commented on the pressures that commercial pressures place on technology developers. Kay’s specific comments focused on the environment in a places like the Xerox Palo Alto Research Center (XPARC) versus the pressures to produce products in commercial entities. In the interview (which is not yet available online), Kay is talking about how he believes the marketing people at Sun Microsystems rushed the release of the programming language Java and, as a result, key work of the software engineers was frozen in place. The result is a programming language that, in Kay’s view, does not live up to its promise of running the same on any and all computing platforms.

What Kay is talking about is the pressure of deadlines in market environments (even politics) which is completely different from deadlines in a research environment. The effect of that pressure can be hasty decisions which carry with them long-term implications.

This story is relevant to understanding what has transpired in Pennsylvania in the past few days. There, under pressure of a powerful telecom lobby and an impending signature of a law by the governor there, the City of Philadelphia, in effect, sold out the rest of the Commonwealth in order to get to deploy the broadband wireless network which prompted this telecom onslaught.

The core story is that RBOC Verizon attempted to use its influence in that state’s legislature to prevent Philadelphia from deploying a city-wide broadband wireless network. It is, apparently, a page from the standard playbook of how, early in the 21st century, telecom giants are trying to preserve their monopolies on infrastructure. This is exactly the tact that BellSouth and Cox took in Louisiana to try to prevent Lafayette Utilities System (LUS) from deploying a fiber to the premises plant here. It is also the approach being used by Verizon and other RBOCs in other states to try to squelch the growing number of local governments that have decided that their historic role as providers of essential infrastructure should now include the infrastructure of the information economy: networks.

On one level, Verizon failed, because in last minute bargaining with Governor Ed Rendell, the City of Philadelphia won the right to deploy its wireless system — if it can do so by January 1, 2006. Any other municipal system not in place or in the process of being deployed by then will have to get permission from the local incumbent carrier to deploy such infrastructure, according to this story on the final legislation.

While the new law is not a complete victory for Verizon, even the New York Times notes that the law will make it more difficult for other municipalities in the Keystone State to deploy new network infrastructure there. What that does is leave the decision as to when these communities to gain access to new network infrastructure in the hands of Verizon and, I guess, cable companies like Comcast.

This is not the status quo, because now there is a body of law that will enable the incumbents to stop municipal network efforts without much effort. It represents a new tightening of the grip of telecom giants on essential infrastructure in Pennsylvania. It also marks a dramatic reversal of fortunes for Verizon and Pennsylvania from earlier in this decade when state regulators nearly separated Verizon’s antecedant Bell Atlantic from its network.

To understand how breathtaking a defeat this is, one has to know a little history about telecom regulation in the Commonwealth of Pennsylvania, dating back to the heady years of the late 1990s when it seemed just about anything was possible.

In those days, Verizon didn’t exist. It’s a company formed by the merger of NYNEX, Bell Atlantic predecessor, Bell Atlantic, and maybe another company or two. Bell Atlantic was the RBOC providing service in Pennsylvania dating back to the breakup of AT&T back in 1984.

With the passage of the Telecommunications Act of 1996, the RBOCs were obligated to open their network infrastructure to competitors. The idea of welcoming competition — and over their own network at that! — ran counter to the way the phone companies were hard wired. The RBOCs were the products of a national monopoly which had been granted regional monopolies when the national monopoly was broken up. Monopoly behavior is in their corporate DNA. Getting RBOCs to open their networks and work nicely with competitors was more than teaching an old dog new tricks; it was like trying to teach a dog to meow!

Regulators at the Pennsylvania Public Utilities Commission recognized something more fundamental, though. They recognized that the heart of the problem was that the RBOCs were being asked to be both network operators and service providers. The network operator (infrastructure) side of the company had to play nice with competitors, welcoming to the network and helping them connect to customers. The service provider side was waging a war against those same competitors, fighting to maintain every percent of that near 100 percent market share the RBOCs had.

The Pennsylvania PUC recognized that the new line sharing requirements forced a form of corporate schizophrenia on the RBOCs resulting from the vertical integration of those companies. That is, the RBOCs were (and still are) organized along the principle of owning the infrastructure and delivering the services to customers. The line sharing requirements dictated that at least one part of these vertically-integrated companies act as if the industry was horizontally segmented; that is, that infrastructure was one element of the industry, that service provision was another.

At some point around the turn of the century, when it became clear that the RBOCs could not really resolve this inner conflict and play nice with the new competitive local exchange carriers (CLECs), someone at the Pennsylvania PUC proposed a radical solution: force the RBOC to divest itself of ownership of the network.

The Penn PUC came damned close to authorizing a full divestiture of Bell Atlantic’s network infrastructure in this decision (it’s a Word file) on interconnection agreements. Instead, the PUC chose “structural separation” which had the effect of walling off the network side of Bell Atlantic from the service selling side. Apparently, the near-death experience of having its network taken away from it was enough of a scare to reform Bell Atlantic’s behavior towards CLECs.

The Penn PUC’s decision to even consider network divestiture was a decision closely watched by regulators and competitors across the country. Had the PUC decided to order a divestiture, it surely would have resulted in a lengthy legal fight. Nonetheless, it would likely have fundamentally changed the terms of the discussion of telecom today.

Viewed in the light of this history, the bill that will legally cede network infrastructure control to Verizon and cable companies constitutes a tremendous fall for businesses and consumers there. It will be interesting to see how this plays out over the next couple of years. Clearly, Verizon has demonstrated that its political influence in Pennsylvania has risen considerably since earlier this decade when the PUC threatened to take it’s network away.

What a turn around!

Annie Collins of the down but not out crew of Fiber For Our Future in Illinois’ Tri-Cities sends us the following link: Comcast boosting local cable rates again

Less than a month after defeating a citizen initiative in the suburbs of Chicago Comcast has returned their customer’s trust by raising their rates again—by 6%. This repeats the pattern Comcast established after the first Tri-Cities initiative failed when they raised their rates after beating back challenges to their monopoly through a misinformation campaign. (See the 2003 edition: Comcast Draws Fire for Changes)

Now it could be said by apologists for these entertainment conglomerates that they have raised rates across the country. Not entirely true…where there is competition, for instance in Braintree, Mass. where the state is set to investigate charges of predatory pricing, Comcast has not only not raised its rates….it has engaged in a door-to-door campaign of offering cheap, much cheaper than in the surrounding areas, 18 month “specials” to win back subscribers to the new municipal utility.

This, I think is Annie’s point, and a point we and the folks in Braintree might well take seriously: Don’t expect any gratitude for doing as the cabelcos desire.

Competition is the only thing that will restrain the rapidly rising cost of cable as a comparison of the cases of the Tri-Cities and Braintree demonstrate.

Support your local utility.

Hey, one of the nice things about the net is that not all your information has to be pulled down through the medium of text–though you couldn’t tell it by reading this blog. So, for something a little different, I’d like you to direct to the aural medium of NPR–you can listen to a bit of your news today.

NPR’s Morning Edition is running a series called “Digital Generations” which, it appears, will mostly focus on how different age cohorts use the internet and technology differenty.

The first installment in the series, however, looks at basic access noteing that folks in rural areas and the elderly are the two least-served populations. The show speaks with an older woman in Kurtztown, PA who was able to get inexpensive broadband through her municipality. They talk with her about how her family helped get it set up and motivated her use.

The story does what NPR does best–put a human face, or rather a human voice, on what would otherwise be a pretty cold story about the penetration rates of various technologies among the rural aged. Give it a listen at: NPR : Rural Areas Demanding High-Speed Internet Access